How to Review Financial Statements Efficiently and Effectively

Most CPA firms create financial statements for their clients. This blog post tells you how to create and review financial statements efficiently and effectively.

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How to Create Financial Statements

First, staff members create the original financial statements. Where possible, electronically link the trial balance to the financial statements. Doing so will expedite the financial statement process and enhance the integrity of the numbers. Ask the staff member to do the following:

Partner or Manager Review

Finally, the partner or manager reviews the financial statements. Having the proofer do their part will minimize the review time for this final-stage review.

Here are tips for the final review:

Scan the complete set of financials to get a general feel for the composition of the report (e.g., Yellow Book report, supplementary information, the industry, etc.) — this is a cursory review taking three or four seconds per page

Read the beginning part of the summary of significant accounting policies taking note of the reporting framework (e.g., GAAP), type of entity (e.g., nonprofit), and whether the statements are consolidated or combined — doing so early provides context for the remaining review of the financials

Review the balance sheet making mental notes of line items that should have related notes (retain those thoughts for review of the notes)

Review the income statement

Review the statement of changes in equity (if applicable)

Review the cash flow statement

Review the notes (making mental notes regarding sensitive or important disclosures so you can later see if the communication with those charged with governance appropriately contains references to these notes)

Return to the balance sheet to see if there are additional disclosures needed (since you just read the notes, you will be more aware of omissions — e.g., intangibles are not disclosed)

Review other reports such as Yellow Book and Single Audit (the staff member preparing the financial statements should have placed supporting examples in the file; refer to the examples as necessary)

If the review is performed with a printed copy of the statements, use yellow highlighter to mark reviewed sections and numbers

If the review is done on paper, pencil in corrections and provide corrected pages to the staff member for amendments to be made

If the review is performed on the computer, take screenshots of pages needing corrections and provide to the staff member

Alternatively, make corrections using Track Changes if the financial statements are in a Word document; these changes will appear in a different color so you can visually see what was changed; Word also provides a different color for each person who makes a change, so you can see who changed what

Last Step

Destroy all drafts–or at a minimum, don’t leave them in the file. Once the financial statements are complete, there is no reason to retain drafts.

Your Suggestions

What other review procedures do you use?

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About the Author

Charles Hall is a practicing CPA and Certified Fraud Examiner. For the last thirty years, he has primarily audited governments, nonprofits, and small businesses.He is the author of The Little Book of Local Government Fraud Prevention and Preparation of Financial Statements & Compilation Engagements. He frequently speaks at continuing education events.Charles is the quality control partner for McNair, McLemore, Middlebrooks & Co. where he provides daily audit and accounting assistance to over 65 CPAs. In addition, he consults with other CPA firms, assisting them with auditing and accounting issues.

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(1) comment

armando balbin May 13, 2016

If he financial statements and notes having Excel tablets are large enough, I create in Excel a sheet giving me a Yes or Not, to let me know of errors. For example: Ending cash – B/S and CF agree? …………………………………………………………………………………..

I am the quality control partner for our CPA firm where I provide daily audit and accounting assistance to over 65 CPAs. In addition, I consult with other CPA firms, assisting them with auditing and accounting issues. Read my full bio…